Canada will be adopting International Financial Reporting Standards (IFRS), effective January 1, 2011. This means that companies, for comparative purposes, will also be required to have their 2010 results reported using IFRS. IFRS will definitely pertain to publicly traded companies, while requirements for private companies are currently under review by the Canadian Accounting Standards Board. On August 14, 2008 the CICA provided an update on their web-site regarding the status of reviews for private companies (3rd round of working drafts) and they are inviting further comments. I reviewed some of the comments / feedback, which seem to indicate that IRFS, with some modifications similar to the existing differential reporting, should be also be applied to private companies.  This would create more consistency in financial reporting and streamline the external audit processes. This is certainly a very relevant discussion for Canada due the high number of private companies operating in Canada.
For further information on the CICA website, click here. See below for a snapshot of the CICA summary.
IFRS Strategic Planning — Private Enterprises

Status: Financial reporting standards for private enterprises under development. Working drafts of individual standards posted.

Background

In its Strategic Plan, issued early in 2006, the AcSB noted that “one size does not necessarily fit all” and decided to pursue separate strategies for public and private enterprises.
As part of the private enterprise strategy, the AcSB proposed undertaking a comprehensive examination of the needs of the financial statement users of private enterprises, and based on its examination, determine the most appropriate financial reporting approach.
In 2002, the AcSB approved the differential reporting model as set out in Section 1300, Differential Reporting. Differential reporting was designed to address the concerns of private enterprises. Until a new financial reporting model has been implemented, the current differential reporting model will remain in place.
The issue of financial reporting by private enterprises is not unique to Canada. The International Accounting Standards Board (IASB) currently has a project to develop standards for small and medium-sized entities. More information on the IASB project can be found here.
Activities to Date

In 2006, the AcSB conducted research into the needs of users of private enterprise financial statements.
In May 2007, the AcSB published an Invitation to Comment (ITC) and accompanying Discussion Paper to solicit stakeholders’ views as to the best approach for developing standards for private enterprises.
The ITC and Discussion Paper include, among other things:

• the results of the comprehensive review of user needs;
• tentative conclusions of the AcSB on a number of fundamental issues; and
• three possible approaches to developing private enterprise GAAP:
— a top-down approach based on public enterprise GAAP (i.e., IFRSs) but providing for differences on a number of topics;
— adoption of the proposed IFRS for Small and Medium-sized Entities (IFRS SME) standard when finalized, possibly with some modification; and
— an independently developed set of standards.

At its December 2007 and February 2008 meetings, the AcSB commenced discussion of responses to the ITC, where it concluded that:
• there should be no size test that excludes any private enterprise from applying the private enterprise standards;
• the conceptual framework should apply equally to publicly and non-publicly accountable enterprises; and
• it will not develop non-GAAP guidance.

The AcSB discussed proposals for developing “made in Canada” financial reporting standards for private enterprises at its April and May 2008 meetings, and decided on the following approach:
• the existing CICA Handbook – Accounting will be used as a starting point;
• the majority of the recognition and measurement standards in the existing Handbook, other than those that give rise to contentious issues, are relevant to the sector and will be retained with few, if any, modifications;
• issues in the existing Handbook that have caused significant concern to private enterprises will be reconsidered, based on cost/benefit considerations;
• the specific disclosure requirements will be re-evaluated and are expected to have considerably fewer disclosures than in the existing Handbook;
• reducing the volume of material will be a secondary goal.

The AcSB has created a new Advisory Committee to aid in the development of the financial reporting standards for private enterprises.
The AcSB has agreed to consider permitting not-for-profit organizations to apply the standards for private enterprises, together with the additional standards addressing their unique circumstances. Accordingly, the needs of these organizations will be considered in the development of the standards. It will remain the responsibility of the Not-for-Profit Organizations Advisory Committee to make any recommendations to the AcSB on the suitability of the standards for the not-for-profit sector.
A description of the objective, approach and timetable for the development of the new set of standards is available here (PDF).

Working Drafts

The Advisory Committee and the AcSB are working on a fast-track basis to develop the new set of financial reporting standards for private enterprises. As they are developed, working drafts of the proposed individual standards are posted here.
The current expectation is that the working drafts will be completed by the end of 2008, and an Exposure Draft of proposed standards for this sector will be published in the first quarter of 2009.
The AcSB will conduct consultations with interested parties on the approach to developing the new standards this summer. Roundtable meetings will be held across the country. Meeting dates and locations will be posted to the AcSB website as they are organized. Stakeholders interested in attending these sessions should consult the website in the coming months.